Shanghai, Nov. 15 - China's Inner Mongolia Little Sheep Catering Chain Co, a fast-growing chain of "hotpot" restaurants that plans to list its shares overseas, has just got a taste of a problem that foreign firms have long complained about: new copycat shops are cropping up faster than its own.
The company recently found at least 50 counterfeit "Little Sheep" restaurants in Beijing alone, under a nationwide campaign against trademark infringement, spokesman Zhu Zhiyong said on Thursday. That far exceeds Little Sheep's 17 outlets in Beijing now, and even the 40 it hopes to be operating by next year under an ambitious expansion plan.
As more Chinese companies grow, they are feeling the urgency of safeguarding their image, brands and intellectual property rights in a country notorious for fake drugs, pirated DVDs and trademark infringements.
Many foreign companies are already intimately familiar with the problem.
A Shanghai coffee shop which called itself Starbucks, in breach of the U.S.-based chain's trademark, finally changed its name earlier this year after a three-and-a-half-year legal battle.
Little Sheep has set up a nationwide warning system to look out for counterfeit shops and is sending inspectors across the country to collect information.
"Little Sheep is a well-known brand and many people want to steal from its success," said Ren Wenfeng, a Shanghai-based lawyer.
"However, trademark and IPR protection are still weak in China."
The counterfeit shops are mushrooming just as Little Sheep is exercising more control over its outlets to ensure the quality of its food and service.
The company slashed its number restaurants by half to 350 from 721 in 2006, after quality concerns emerged at several franchised outlets.
Last year, Little Sheep sold a 30 percent stake to private equity firms 3i Group Plc and Prax Capital, raising US$25 million to fund expansion.
The chain is targeting sales growth of 40 percent per year and aims to expand to more than 1,500 outlets in China.
The company has said it is preparing for an overseas IPO but has not said when or where it would list, although Chinese media have reported that it plans to raise HK$2 billion ($256 million) through a Hong Kong IPO next year.